Is Age Just a Number: The Performance of Emerging Fixed-Income Managers

Abstract

This article provides an analysis of performance for emerging long-only U.S. fixed income firms that manage domestic products. The term “emerging” is typically used to define firms with assets under management (AUM) of $2 billion or less. We look at emerging firms not based on AUM but rather by age. We investigate the returns of younger fixed income firms versus those with longer tenures. Our sample consists of fixed-income core and high-yield managers with monthly returns data from January 1985 to December 2007. By isolating age as opposed to AUM as the primary variable, we are truly able to look at firms who are just starting out. We find that younger firms perform better than older firms. Gross returns for both fixed-income core and high-yield managers are statistically significantly higher for firms in their first five years versus firms in their second five years. We also present evidence that the business risk for investors who are hesitant about emerging fixed-income managers is generally unsupported. Additionally, we show that a portfolio composed of emerging fixed-income managers can deliver alpha.